Continued pandemic levels of home working could cost GDP £15.3bn every year

According to PwC's latest research, the hit to consumption is a result of office workers spending fewer days in city offices, meaning less money is spent on surrounding shops, cafes and cultural amenities.

Jonathan Gillham, PwC’s chief economist, explained that this decrease in spending has a snowballing effect whereby ancillary workers, such as canteen workers, security guards and waiters, whose jobs rely on workers being present in offices, reduce their own spending in response. 

“We've seen office and home working pitted against each other in recent months but it’s not as simple as one being more effective than the other," said Mr Gillham.

"Our research highlights some of the broader economic implications and unintended consequences. While continued working from home could help level up smaller cities and rural areas, it would have a disproportionate impact on lower paid workers in bigger cities."

Mr Gillham opined that a blend of office and home working is the best way to help cushion the economy as the furlough scheme draws to a close.

"Getting more people back to offices safely is critical. The UK is a services-based economy that’s powered on people coming together face-to-face,” he said.

PwC warned that the lower spending that is associated with a persistent shift to working from home could have a negative impact on UK GDP of around £12 billion and on hours worked that is equivalent to 250,000 jobs per year. 

As well as a hit to consumption, continued working from home could also shave £3.2 billion off UK GDP as a result of a decrease in the clustering of economic activity (agglomeration), making it 4.3 per cent lower than if workers were back in offices.

This, PwC explained, can be a loss from networking and interactions between people, as well people taking less well-paid jobs outside of major cities, all of which result in overall lower connectivity between people and firms. In particular, a decrease in economic clustering may cause productivity of the financial and business services sector to fall by 0.36 per cent. 

But working from home does have the potential to level up certain areas of the country.

Areas that could benefit from a shift to working from home include outer London and smaller cities like Wigan, Bradford and Blackpool. However, PwC pointed out that these benefits are unlikely to be outweighed by the negative impact that decreased spending in larger cities would have, with places like Liverpool, Manchester, Sheffield, Leeds, York, Birmingham and London set to suffer the most from continued home working.

The average weekly spend by an office worker is expected to fall from £416 in February to £404 in August and September, with the largest reductions in spending coming from higher income groups. The biggest cut in spending is to be on entertainment and on eating and drinking out, and is an equivalent of £5 less per week for those earning £40,000 or more. Given these sectors are large employers, there will likely be a sizable knock-on effect on employment if spending in these areas below pre-lockdown levels persists.